Blackrock

BlackRock's Fink Picks Up Investors' Emergency Calls (Update2)

By Sree Vidya Bhaktavatsalam

April 15 (Bloomberg) -- Laurence Fink, who started BlackRock Inc. in a one-room midtown Manhattan office, was turned away by an investment consultant in 1988 with the words, ``Just what the world needs, another bond manager.''

Two decades later, Fink runs the biggest publicly traded U.S. fund company and has earned a reputation as a skilled risk manager. New York-based BlackRock was picked March 24 by the Federal Reserve to oversee $30 billion of Bear Stearns Cos.' investments after the fifth-largest U.S. securities firm agreed to be acquired by JPMorgan Chase & Co. Fink was called in last year to save a Florida state money fund.

BlackRock, which has dodged subprime-tainted debt in its own funds, has pushed aside competitors including Pacific Investment Management Co. and Legg Mason Inc. in the current financial crisis. The company, which is set to report first- quarter earnings tomorrow, collected $137.6 billion from investors in 2007, the most among publicly traded money managers.

``If there is a 911 for fixed-income assistance, the phone would ring at Larry Fink's office,'' said James Ellman, president of San Francisco-based SeaCliff Capital LLC, which oversees $150 million and holds BlackRock shares. ``BlackRock is a real beneficiary from the credit crunch.''

The company has gained 30 percent in New York Stock Exchange trading in the past year, compared with the 8.2 percent decline of the Standard & Poor's 500 Index and 30 percent drop by the Russell 1000 Financial Index. It's the best-performing asset manager in the Russell index and fourth overall.

Analyst Downgrades

Profit excluding some compensation and other costs probably increased 26 percent in the first quarter to $2.01 a share, according to the average estimate of nine analysts surveyed by Bloomberg. The company oversees about $1.4 trillion of assets, the most among listed money managers.

BlackRock lost ``buy'' ratings from analysts at Goldman Sachs Group Inc. and Wachovia Corp. last week. Wachovia's Douglas Sipkin cut his 2008 earnings forecast to $9.03 a share from $9.71 because the stock-market slump may reduce assets under management.

``I'm not frightened of our growth prospects over the long term,'' Fink, 55, said in an April 4 interview in his New York office. He declined to comment on first-quarter earnings. ``We're going to continue to grow very fast overseas. We'll grow less fast'' in the U.S., he said.

`Add More Risk'

Fink said BlackRock is increasing investments in real estate and hedge funds. The firm is also advising investors to buy riskier assets such as bank loans, mortgages and high-yield debt.

``We are telling clients it's time to add more risk,'' Fink said.

BlackRock has gathered $5 billion for two funds to buy mortgages, distressed debt and leveraged loans. It has also joined with hedge-fund firm Highfields Capital Management LP to start a firm that will raise $2 billion to buy delinquent residential mortgages. Private National Mortgage Acceptance Co. LLC, or PennyMac, will be run by Stanford Kurland, the former president of Countrywide Financial Corp.

BlackRock was named last year to manage Florida's Local Government Investment Pool on an interim basis after it was frozen. The fund was the largest of its kind before a run by investors concerned that it would lose money on subprime-related securities.

`Best in Class'

The Federal Reserve, in an attempt to stave off the bankruptcy of Bear Stearns, agreed to take illiquid assets off the company's balance sheet. BlackRock will manage the investments in an attempt to recover full value through a sale.

``Throughout this credit crunch, BlackRock has emerged as the best-in-class asset manager,'' said David Honold, a portfolio manager at Berwyn, Pennsylvania-based Turner Investments Inc., which manages $25 billion, including 629,486 BlackRock shares, all bought in the fourth quarter.

BlackRock, which has $513 billion in fixed-income assets, ranks third among U.S. bond managers. Newport Beach, California- based Pimco manages $746 billion and Legg Mason in Baltimore has $514.5 billion of bond assets.

BlackRock's fixed-income unit is headed by Scott Amero and Peter Fisher, the former Treasury undersecretary. Robert Kapito, BlackRock's president, joined the firm at its inception and is responsible for day-to-day oversight of the company's units including portfolio management and the risk-management unit called BlackRock Solutions.

Not Immune

BlackRock has not been completely immune to losses on collateralized debt obligations, which are securities backed by bonds and mortgages. The firm, which manages about $20 billion in CDO funds, incurred a $12 million expense in the fourth quarter on the securities. BlackRock also spent $18 million in the quarter to support the net asset value of two enhanced cash funds whose values fell as the credit markets got squeezed.

BlackRock manages 66 closed-end funds, which used the auction-rate market to borrow money in an effort to boost returns. The $330 billion market froze beginning in February after auctions failed. BlackRock said today it plans to redeem $1.9 billion of $9.8 billion in auction-rate preferred shares outstanding.

BlackRock started moving away from risky debt starting in 2005 because of what the firm believed to be a ``credit bubble,'' Fink said.

A California native, Fink has specialized in bonds since graduating in 1976 from University of California's business school in Los Angeles. He is the son of a shoe-store owner and an English professor.

CMO Originator

At First Boston Corp., he was the youngest-ever managing director when he got the title at age 29 in 1981. In 1983, while running the fixed-income department, he was one of two bankers to invent a security that repackaged mortgage-backed bonds into new securities with different responses to changes in interest rates, called collateralized mortgage obligations, or CMOs. In 1986, Fink's team lost money on bad bond bets.

Two years later, he co-founded BlackRock, along with seven other executives, with capital from New York-based private- equity firm Blackstone Group LP. PNC Financial Services Group Inc. bought the company for $240 million in 1995 and sold a stake to the public four years later.

New York-based Merrill Lynch & Co., the third-biggest U.S. securities firm by market value, owns 49 percent of BlackRock, making it the company's largest shareholder. Pittsburgh-based PNC is second-biggest, with a 34 percent stake.

To contact the reporter on this story: Sree Vidya Bhaktavatsalam in Boston at sbhaktavatsa@bloomberg.net.